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September 3, 2015
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UPDATE: Tax relief for landlords cut

The post-election Budget 2015 announced that the government will cap the amount that landlords can claim on mortgage payments for private rental properties.

Current Rules

Under the current system, landlords are entitled to deduct mortgage interest payments from rent received in order to arrive at taxable profits.  Therefore, a higher-rate taxpayer can claim 40% tax relief on the mortgage interest paid, while an additional rate taxpayer can claim 45% tax relief.

What’s changed?

The new rules mean that when fully in motion, the amount that landlords will be able to claim as relief will be restricted to the basic-rate of tax, currently 20%. This deduction will be called a basic rate tax credit (BRTC).

The restrictions to tax relief for finance costs, which applies to individuals only, will be introduced over four years:

2017/18 – 75% of finance costs relieved as now, 25% as BRTC

2018/19 – 50% of finance costs relieved as now, 50% as BRTC

2019/20 – 25% of finance costs relieved as now, 75% as BRTC

2020/21 – 0% of finance costs relieved as now, 100% as BRTC

Example

In April 2020 a higher-rate taxpayer rents out a property and makes a mortgage interest payment of £100 per month.

Under the current rules the landlord would be able to deduct £100 a month from rent received to arrive at taxable rental income, resulting in a £40 tax saving.

Under the new rules, tax relief will be given at 20% of the interest paid, meaning that landlords can deduct £20 from their tax liability.

Wear & Tear Costs

It was also announced that from April 2016 landlords who rent out furnished properties will no longer be able to automatically deduct the 10% wear and tear allowance from rent received in calculating property income.

The tax break will be replaced with a new system which means that landlords can only deduct costs that they actually incur on the replacement of furnishings.

Contact us today to discuss your tax requirements.
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